Payroll Tax Alert - 2009

We have summarized the requirements and changes regarding payroll tax withholdings and deposits for 2009.  Outlined below are the requirements which are effective as of January 1, 2009.  As always, if you should have any questions, please do not hesitate to call us.

 

 

1.  Federal income tax should be withheld based on the tables in the Internal Revenue Service's "Employer Tax Guide", Publication 15, Revised 1/09.  The minimum amount to be withheld for supplemental wages, such as bonuses, is twenty-five percent (25%) of the gross wages.

  

 2.  FICA (Federal Insurance Contributions Act) tax rates and wage base:

 

Social Security and Medicare taxes have different rates and only the Social Security tax has a wage base limit.  The wage base limit is the maximum wage that is subject to tax for the year.  Determine the amount of withholding for Social Security and Medicare taxes by multiplying each payment by the employee tax rate.

 

For 2009, the employee tax rate for Social Security is 6.2% and the wage base limit is $106,800.00.  The maximum amount of Social Security tax withheld is $6,621.60.

 

The employee tax rate for Medicare is 1.45% and there is no wage base limit.

 

 

As in the past, the federal payroll tax deposit liability is computed by adding the federal income tax withheld to twice the Social Security tax and twice the Medicare tax withheld for all employees for a payroll period.  Review the following example:

 

          Federal income tax                                                                     $  500.00

          Social Security ($300.00 x 2)                                                          600.00

          Medicare ($70.00 x 2)                                                                    140.00

 

                     Total Payroll Deposit                                                      $1,240.00

 

 

 

 

 

There are two deposit schedules-monthly or semiweekly-for determining when you deposit social security, Medicare, and withheld income taxes.  These schedules tell you when a deposit is due after a tax liability arises (for example, when you have a payday).  Before the beginning of each calendar year, you must determine which of the two deposit schedules that you are required to use.  The deposit schedule that you must use is based on the total tax liability that you reported on Form 941 during a four-quarter lookback period.  Your deposit schedule is not determined by how often you pay your employees or make deposits.

 

Deposit period.  The term deposit period refers to the period during which tax liabilities are accumulated for each required deposit due date.  For monthly schedule depositors, the deposit period is a calendar month.  The deposit periods for semiweekly schedule depositors are Wednesday through Friday and Saturday through Tuesday.

 

 

You are a monthly schedule depositor for a calendar year if the total taxes on line 8 of Form 941 for the four quarters in your lookback period were $50,000 or less.  Under the monthly deposit schedule, deposit Form 941 taxes on payments made during a month by the 15^th day of the following month.

 

 

You are a semiweekly schedule depositor for a calendar year if the total taxes on line 8 of Form 941 during your lookback period were more than $50,000.  Under the semiweekly deposit schedule, deposit Form 941 taxes for payments made on Wednesday, Thursday, and/or Friday by the following Wednesday.  Deposit amounts accumulated for payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday.

 

 

If your payroll tax liability accumulates to $100,000 or more on any day during a deposit period, you are required to make a deposit by the close of the next banking day.

 

 

 

All taxpayers making deposits for employment and other taxes of more than $200,000 for subsequent years must make all federal tax deposit payments electronically.  This means that taxpayers that meet the above employment tax threshold will no longer be able to complete Form 8109 and deposit a check with your bank for employment and other federal taxes without incurring a 10% penalty.

 

The Internal Revenue Service has been sending out notices to taxpayers that must enroll in the Electronic Federal Tax Payment System(EFTPS).  They estimate that it could take ten to twelve weeks to complete the enrollment procedure.  If you are required to make deposits in this manner and have not yet enrolled with the IRS, you should do so immediately.

 

Taxpayers have two options when making electronic deposits: (1) Taxpayers can initiate the transfer by contacting the Treasury Financial Agent in your area to transfer funds from your account directly into the Treasury’s account at the Federal Reserve Bank, or (2) Taxpayers can instruct their bank to electronically transfer the deposit to the Treasury’s account at the Federal Reserve Bank.

 

We can advise you in determining the appropriate deposit option for you and assist in enrolling you in the option that best meets your needs.  Please call our office to discuss this matter in further detail.

 

 

Cash disbursements, checkbooks, payroll registers and information furnished to employees with payroll checks should show the following:

 

                        Federal income tax withheld

                        FICA (social security and medicare) tax withheld

                        State Income Tax Withheld

                        SDI Tax Withheld     

 

 

 

1.  State income tax should be withheld based on the tables in the Employment  Development Department's "Employer's Tax Guide", DE44, Rev. 20 (1/08).  The minimum amount to be withheld for supplemental wages is 6% of gross wages.

 

State payroll tax liability is computed by adding the state income tax withheld to the SDI withheld.  Use Form DE 88. The last deposit of each quarter is due at the end of the month after the quarter and should include payment of Unemployment Insurance (UI) and Employment Training Tax (ETT) for the quarter.

 

The State of California Employment Development Department has adopted the same deposit requirements as the Internal Revenue Service.  If you are required to make a monthly federal tax deposit and your state income tax withholding exceeds $350.00, then a deposit is due within fifteen days after the end of the month.  If you are required to make a semi-weekly federal tax deposit and the state income tax withholding exceeds $500.00, then a deposit is due on either Wednesday or Friday, as explained in the new federal deposit rules.

 

 

The timely filing and paying of payroll taxes is the responsibility of each employer; however if you should need assistance in the computation of these deposits, we will be glad to assist you. With the start of a new year, it is a good time to have all employees fill out a new employee's withholding allowance certificate (W-4).  These should be kept in a permanent file with your other employee data.  The Franchise Tax Board requires you to submit a copy of the DE4 Form, if the number of allowances claimed exceed 10 or more withholdings.

 

Social Security and Medicare coverage has been extended to wages paid to an individual by his or her spouse.  For wages paid to a child employed by his or her parent in the course of the parents trade or business, Social Security and Medicare coverage applies if the child is 18 or older.

 

 

Employers must verify that each new employee is legally eligible to work in the United States.  This will include completing the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification.  Some ways to establish both authority to work and identity can be established by one of the following: (1) U.S. Passport; (2) Permanent Resident Card or Alien Registration Receipt Card (Form I-551); (3) An unexpired foreign passport; (4) Driver’s license or state issued ID card along with a U.S. Social Security card issued by the Social Security Administration.  There are additional documents that may be used for establishing proper authorization to work, please refer to the newly revised Form I-9 instructions.  The revised Form I-9 should state an expiration date of June 30, 2009.

 

After the documents have been examined, Form I-9, Employment Eligibility Verification, must be signed and retained by the employer for at least three years or until one year after the date employment ends, whichever is later.  If you should need a copy of the form, please contact our office.

 

 

Employers must report information about every new employee to the appropriate state agency within 20 days of their date of hire.  Employment Development Form DE34 must be filed within 20 days of hire of new employees.  Multiple employees hired within the 20 day period may be reported on a single form.  There are exceptions to the Employee Registry Rules.

 

 

California law requires business owners to report individuals who perform services to the state’s Independent Contract Registry by using Form DE542 (Report of Independent Contractors). You are required to report individuals who are independent contractors and who you pay or will pay $600 or more during the calendar year.  You must report these independent contractors within twenty days of the earlier of: a) making payments of $600 or more; or b) entering into a contract for $600 or more in any calendar year.

 

If you should need a copy of Form DE34 or DE542, please call our office.